Pulte Home Corp. v. American Safety Indemnity Co.

A construction subcontractor’s CGL policy did not clearly exclude “completed operations” coverage for an additional insured (here, the developer) or terminate insurance coverage when the subcontractor finished working on the project. Following Pardee Construction Co. v. Insurance Co. of the West (2000) 77 Cal.App.4th 1340, this decision interprets coverage for an additional insured (the developer) under a subcontractor’s CGL policy. The policy offered “completed operations” coverage as well as “on-going operations” coverage. The additional insured endorsement granted the additional insured coverage “but only with respect to liability arising out of ‘your work’ which is ongoing and which is performed by the Named Insured for the Additional Insured on or after the effective date of this Endorsement.” The decision holds that this limitation did not clearly exclude “completed operations” coverage for the additional insured since liability for harm caused by “completed operations” could arise from the named insured’s work done after inception of the policy. The quoted language did not clearly limit the insurance coverage to liabilities which arose while the named insured was still performing its construction work. Also, the exclusions for damage to the insured’s own work did not absolve the insurer of its duty to defend the developer since the underlying suits alleged that the subcontractors’ poor construction led to water intrusion damaging other parts of the building. The decision also affirms a finding that the insurer acted in bad faith in denying coverage and a defense. The insurer knew that subcontractors bought the insurance to satisfy subcontract conditions requiring them to provide completed operations coverage, yet routinely denied that coverage whenever an additional insured tried to claim it. Punitive damages roughly equal to contract damages were sustained. But the Brandt attorney fee award was reversed and remanded since it was based on a post-trial modification of the attorney’s contract with his client, the insured, changing it from a contingency fee to hourly rate, to the insurer’s disadvantage.